Snapshot
Parker-Hannifin Corp reported $5.17B of revenue in Q2 2026, up 9.1% year over year, with diluted EPS of $6.60 and an operating margin of 21.1%.
- Revenue
- $5.17B
- YoY growth
- +9.1%
- Diluted EPS
- $6.60
- Operating margin
- 21.1%
What management said
- •The agenda for the call today has Jenny starting with an overview of our record FY26 Q2 performance.
- •We will both provide some details on the increase to our guidance that we released this morning.
- •Our team delivered record Q2 sales of $5.2 billion, Organic Growth of 6.6%, and 150 basis points of margin expansion, resulting in 27.1% Adjusted Segment Operating Margin.
- •Adjusted Earnings Per Share grew 17%, and cash flow from operations was $1.6 billion.
- •These six market verticals represent greater than 90% of the company's revenue.
- •Two-thirds of our revenue comes from customers who buy four or more technologies, and our growth is focused on faster-growing, longer-cycle markets and secular trends.
- •We win with innovative and differentiated product technology, subsystems, and full system capabilities designed to increase the capability and productivity of our customers.
- •The acquisition of Filtration Group adds complementary and proprietary technologies for critical applications while expanding our presence in life sciences, HVAC and refrigeration, and in-plant industrial market verticals.
- •The combination of Parker Filtration and Filtration Group creates one of the largest global industrial filtration businesses and increases Parker Filtration aftermarket sales by 500 basis points.
- •This strategic transaction continues our investment in high-quality businesses that continue to transform our portfolio, accelerate sales growth, improve profitability, and drive shareholder value.
- •The acquisition of Filtration Group will continue our track record of accretive acquisitions.
- •We are proud to have once again set new records for sales, adjusted segment operating margin, EBITDA, net income, and EPS.
What went well
- •Parker delivered record Q2 sales of $5.2 billion, up 9% versus prior year, with organic growth of 6.6%.
- •Adjusted segment operating margin reached a record 27.1%, up 150 basis points from the prior year, and adjusted EPS grew 17% to a record $7.65.
- •Order rates were positive across all reported businesses, with total company orders up 9% and backlog increasing to a record $11.7 billion.
- •The Aerospace Systems segment posted record sales of $1.7 billion, up 14.5%, with adjusted segment operating margin up 200 basis points to 30.2%, driven by strong commercial OEM and aftermarket demand and a record $8 billion backlog.
- •International sales reached a record $1.5 billion, up 12%, with Europe turning to positive organic growth of 2% and Asia-Pacific the strongest at +9%, and international margins hit a record 26%.
- •Cash flow from operations was $1.6 billion, or 16% of sales, the company announced the acquisition of Filtration Group Corporation, and it raised full-year guidance across the board.
What went wrong
- •Transportation demand challenges persisted in both truck and auto, with the segment forecast remaining at mid-single-digit organic decline and no truck OEM recovery expected this fiscal year.
- •Agriculture remained under pressure within the off-highway vertical, and upstream oil and gas stayed soft within energy.
- •First-half free cash flow saw a drag from working capital and the timing of some tax payments, though management expects this to be a first-half-only issue.
- •Latin America was down slightly at 3% versus prior year, and North America margin was modestly lower in Q2 than Q1 on less favorable mix.
Guidance changes
| Metric | Period | Previous | Current | Change |
|---|---|---|---|---|
| Reported sales growth | FY2026 | — | 5.5%-7.5% (6.5% midpoint) | raised |
| Organic sales growth | FY2026 | 4%-5% midpoint | 4%-6% (5% midpoint) | raised |
| Adjusted segment operating margin | FY2026 | 27.0% | 27.2% | raised 20 bps |
| Adjusted EPS | FY2026 | — | $30.70 midpoint (+/- $0.30) | raised, +12.3% vs prior year |
| Free cash flow | FY2026 | — | $3.2B-$3.6B (~$3.5B midpoint), conversion >100% | raised |
| Aerospace organic growth | FY2026 | 9.5%-11% | 11% | raised |
| Off-highway organic growth | FY2026 | neutral | positive low single digit | raised |
| North America organic growth | FY2026 | 2% | 2.5% | raised |
| International organic growth | FY2026 | 1% | 2% | raised |
| AMEA organic growth | FY2026 | flat | low single digits | raised |
| Asia-Pacific organic growth | FY2026 | positive low single digit | positive mid single digit | raised |
| Reported sales | Q3 2026 | — | ~$5.4 billion (~8.5% up) | increase to prior guide |
| Organic sales growth | Q3 2026 | — | 5% | increase to prior guide |
| Segment operating margin | Q3 2026 | — | 27% | increase to prior guide |
| Adjusted EPS | Q3 2026 | — | $7.75 | increase to prior guide |
| Interest expense | FY2026 | $420 million | $415 million | down $5 million |
Performance breakdown
| Metric | YoY change | Reason |
|---|---|---|
| Total company sales | +9% | Organic growth of nearly 7%, currency favorable 2%, acquisitions favorable 1.5%, partly offset by a 1% divestiture headwind. |
| North America organic growth | +2.5% | Slightly better than expectations on strength in off-highway and aerospace and defense verticals. |
| North America adjusted operating margin | +80 bps to record 25.4% | Incrementals of 52% from operational execution. |
| International sales | +12% to record $1.5B | Organic growth of 4.6%, with Asia-Pac strongest at +9% and Europe positive at +2%; benefited from timing of large project shipments in power gen and commercial HVAC filtration in AMEA. |
| International adjusted operating margin | +190 bps to record 26% | Improvements in productivity and solid operational execution. |
| Aerospace Systems sales | +14.5% to record $1.7B | Organic growth of 13.5% driven by commercial OEM and aftermarket including strong spares and repairs volume. |
| Aerospace adjusted segment operating margin | +200 bps to 30.2% | Higher volumes aided productivity along with strong commercial spares and repairs. |
| Net income | $980 million (18.9% return on sales) | Strong growth and margin expansion across businesses. |
| Commercial aerospace aftermarket | +17% in Q2 (13% in Q1) | Continued strength in commercial markets. |
Earnings call themes & trends
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Filtration Group acquisition | announced in November | Integration planning underway with proven playbook; expected to close 6-12 months from announcement; ~$220M cost synergies targeted by end of year three; no revenue synergies modeled but upside seen | rising |
| Aerospace and defense strength | — | Record sales and margins, record $8 billion backlog, order rates +14%, led by commercial markets; multi-year A&D orders also boosting industrial businesses | rising |
| Industrial short-cycle recovery | — | Described as gradual; positive distributor sentiment and quoting activity, but customer CapEx remains selective toward productivity and automation over capacity expansion | rising |
| Orders outpacing sales / record backlog | — | Orders have outpaced sales for 8 quarters; record total backlog of $11.7B; industrial backlog grew from Q1 to Q2, reflecting longer-cycle business mix | rising |
| Incremental margins | — | Over 40% delivered; full-year guided to 40% with H2 at 35%, which management views as best in class | steady |
| Tariffs | — | Volatile but covered; no negative impact called out; managed through pricing discipline with margins at all-time records | steady |
| Off-highway | negative low single digit (August), then neutral (Q1) | Raised to positive low single digit on construction and mining growth while ag remains under pressure | rising |
Q&A summary
Diversified Industrial technology platforms saw positive organic growth across all three for the first time since June 2023 - is this Parker-specific or cyclical, and what does it imply for the Filtration Group deal?
Management said it is a combination: some Parker-specific, plus a return of short-cycle business such as off-highway, and strong aerospace within the industrial businesses; distribution had low single-digit organic growth. Filtration Group is expected to see improving organic growth too, supporting the view it was acquired near a cyclical bottom.
Could you give more color by region - is Europe's turn durable and is APAC's outlook still good?
Management raised North America to 2.5%, international to 2%, AMEA to low single digits, and Asia-Pacific to positive mid single digit; cited industrial/aero/defense strength in North America, large project shipments in AMEA, and electronics/semiconductor demand plus China mining improvement in Asia-Pacific, with tariff uncertainty noted.
On the 40%+ incremental margins - how long before you raise the 30%-35% guide, and what is driving it: price or execution?
Management guided H2 incrementals at 35% (40% full year), said it is best in class and driven by a litany of factors varying by business, with margins at all-time highs; the CEO attributed it to strong operational execution.
Why does international growth slow to 2% in Q3 and Q4 despite easier comps - are you being conservative?
Q2 benefited from timing of large project shipments in power gen and commercial HVAC filtration in AMEA that will not repeat in Q3; the 2% reflects continued gradual industrial recovery, and they noted the prior international guide had effectively been doubled.
Over the last decade implied volumes are roughly flat - do you agree, and do you need through-cycle volume growth?
Management said the portfolio has changed tremendously with more Engineered Materials, Filtration, and aerospace/defense; the company has a 4-6% long-term organic target and is guiding 4-6% this year despite 2+ years of industrial choppiness, and is proud to generate record margins in a weak organic environment.
On Filtration Group integration - any early confidence on cost synergies and view on sales synergies?
Management expressed high confidence in delivering the $220 million in synergies by end of year three, supported by diligence plant visits; no revenue synergies were modeled but they see upside from shared customer relationships and distribution networks.